Flight Centre optimistic about Aussies despite subdued market

Flight Centre says Australian holidaymakers remain cautious and yet to be buoyed enough by any tax breaks to encourage them to jet across the globe.

“The general consensus is that people feel a little less confident particularly spending on overseas holiday-type products when they’re not as confident of their net worth because of the housing market,” Flight Centre chief executive Graham Turner told The Australian Financial Review.

Flight Centre boss Graham Turner. Photo: Glenn Hunt

The ongoing dourness is important because it was among areas blamed for a profit squeeze at Flight Centre Travel in the past year. That's particularly because the Australian leisure market is a key business for its namesake brand.

But the company was optimistic about local business recovering. “We've got operational things – sales and other performance management – that are just as important, and we can do something about that as well as things like marketing, advertising and other promotions,” Mr Turner said.

The company added that margins had recently stabilised in that division.

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It came as Flight Centre, whose brands include youth-oriented Universal Traveller and corporate-focused FCM, said underlying full-year profits before tax dipped 11 per cent to $343 million.

That result was within guidance given in April, when Flight Centre suffered a sharemarket bashing by lowering expectations because of both internal upheaval and muted appetite from Australians for travel. Shares were trading at $67.12 this time last year and recovered some ground on Thursday – spiking $3.89 to $47.73 by afternoon trade.

That came as Flight Centre stuck to long-term forecasts and envisioned “strong growth” in its American division, which posted a 44 per cent rise in pre-tax earnings to $102 million.

One target is for pre-tax profit margins to lift to 2 per cent by 2022. That’s despite those margins falling from 1.76 per cent to 1.45 per cent in the past year.

Analyst Peter Drew from Carter Bar Securities said the 2022 target seemed “aspirational unless we saw some turnaround in leisure”.

“They’ve clearly got a fair bit of work to do in the Australian leisure business given that deterioration,“ he said. “They really need to keep the offshore business firing to get growth.”

The value of transactions flowing through its UK division rose 4 per cent for the year, but Flight Centre said the corporate travel market there had suddenly dampened following British Prime Minister Theresa May resigning in May amid turmoil about Brexit.

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But Mr Turner was not fretting about the current US-China trade hostilities, partly given Flight Centre only had a 2 per cent of the North American corporate travel market.

“Unless it gets a lot more serious, I don’t think that'll negatively affect us in the short term,” he said.

Mr Turner thought that recent protests in Hong Kong would hurt the desire of people to travel to the Asian locale.

“People see this on TV every second night ... there's no doubt in my mind that Hong Kong will be negatively affected,” he said.

Flight Centre’s statutory profit after tax was down 0.2 per cent to $264 million.

The final dividend was cut to 98¢, compared to $1.07 last year. Investors, however, had received a bumper $1.49 special dividend at the half-year results in the mistaken anticipation of a Labor victory at the federal election, which would have impacted returns available to some investors.

The overall value of transactions processed by Flight Centre – before taking its clip – hit a record $23.7 billion, up 8.8 per cent. But revenues for Flight Centre itself rose slower at 4.5 per cent, which was partly blamed on the rapid rise of lower revenue-margin brands such as foreign exchange businesses.

The company also blamed the profit fall on internal upheaval including cutting brands and implementing a new wage model that bumped up costs by $14 million.

Wages have been a sore point with Flight Centre currently defending a lawsuit, backed by unions, involving former and current staff alleging underpayment.

The company accounts showed staffing levels dipped from 20,257 to 19,993, but it also planned hiring another 200 sales staff this year.

About 30 Flight Centre-branded stores could be closed but another 20 outlets, trading under other labels, could be opened, it said.